The Tribune

The Bahamas Petroleum Company’s (BPC) chief executive yesterday said the Government’s increased ‘take’ from oil exploration would not apply to its activities, because its fiscal terms were already set.

Simon Potter told Tribune Business that BPC’s licences, which were recently renewed for a further three years until April 18, contained terms dictating the Government’s share that pre-dated the Petroleum Bill and accompanying regulations coming to Parliament.

“The fiscal terms are contained in our licences already, so the fiscal regime discussed would be the extent that there are discussions with regard to licence issues in the future,” Mr Potter told Tribune Business.

“The fiscal terms [in the Bill] don’t impact the fiscal terms that were agreed with the Government in our licences.”

The fiscal regime contained in BPC’s licences tie the Government’s share to production volumes, with royalty rates ranging from a minimum 12.5 per cent to a maximum 25 per cent.

BPC has previously given presentations showing that, based on an $80 per oil barrel price, some 25 per cent of that sum will go to the Government with an equal share accruing to the company, provided that commercial quantities of recoverable oil can be found in Bahamian waters. The remaining 50 per cent, or $40 per barrel, would cover drilling and production costs.

BPC’s terms are thus much different from the enhanced fiscal regime unveiled in the House of Assembly on Wednesday by Kenred Dorsett, minister of the environment and housing.

While retaining the original ‘sliding scale’ for royalty payments that is contained in BPC’s licence, the new regime increases the Government’s take from a maximum 25 per cent to 75 per cent.

Mr Dorsett, in unveiling the revised Bill, said the fiscal regime determining the Government’s share of oil exploration revenues/profits had been amended to ensure its share increased as the latter rose.

Mr Dorsett said the Government would receive a minimum 12.5 per cent (same as under BPC’s licences), and up to a maximum 75 per cent, of any profits and give the Bahamas “a greater benefit should oil be found in commercially viable quantities and produced” in this nation.

Mr Dorsett said the Commonwealth Secretariat’s economic and legal section (ELS) had suggested that the previous regime, which capped the Government’s earnings at a maximum 25 per cent, gave the Bahamas “a relatively low level” of earnings from oil exploration.

The ELS recommended that a Resource Rent Tax (RRT) be included “to capture economic rent in cases of high profitability of a petroleum project”.

And it also suggested a ‘ceiling’ be imposed on the deductions an oil explorer could apply in calculating cost recovery and profitability.

The ELS said the Government should “set an annual cost recovery limit at 75 per cent of post-royalty production for oil, and 100 per cent for natural gas”.

Mr Dorsett thus concluded: “This regime is a great balance, ensuring that both the Government and the investor receives a fair share of the revenues generated from the petroleum industry of the Bahamas.”

In effect, this means that the Government’s share will increase should any oil explorers come after BPC, and is a recognition that the terms previously agreed with the latter cap its ‘maximum’ at too low a level.

Meanwhile, Mr Potter said BPC had “waited patiently” for the Government to introduce its new oil exploration regulatory regime, adding that the company “always respected its wishes” to upgrade this framework.

The BPC chief said the enhanced regulatory regime was introducing “the things that we would have done”, in terms of international standards and global best practices.

“It’s that clarity,” Mr Potter said of the regulatory regime’s publication and imminent passage through Parliament. “It says: ‘We are going to do this, and now we’ve done it’.

“That is what international investors want. They need clarity, and this is what clarifies the Government’s position with respect to hydrocarbon exploration.”

That refers to BPC’s continued search for a joint venture partner to share in the $60-$100 million burden of drilling its first exploratory well by April 2017, a task that should be made easier once the new regulatory regime is confirmed.

Mr Potter said the Government’s National Energy Policy (NEP) “said oil exploration has a role to play”, while the move to establish a Sovereign Wealth Fund was recognition that BPC’s efforts could bring tremendous financial rewards to the Bahamas if successful.

“Oil exploration, if successful, has the potential to be a game changer for the economy,” Mr Potter told Tribune Business. “I’m pretty sure we’ll find oil. It’s the volumes of oil we find that’s critical, and the extent to which they’re commercially developable.”